3 Basic Strategies for Reducing Your Taxes

The goal of tax planning is to arrange your financial affairs so as to minimize your taxes. There are three basic ways to reduce your taxes.

Source: 3 Basic Strategies for Reducing Your Taxes

Posted in Accounting, Cost Segregation, Federal Income Tax, Income Tax, Income Taxes | Leave a comment

Does Section 1245 Property Include Real Property?

Does Section 1245 Property Include Real Property?

Section 1245 property does include personal property.  Assets such as computers, desks, chairs, copiers, etc. are all personal property falling under Section 1245.  However, Internal Revenue Code Section 1245 does include real property assets.  Let’s have a look.

Section 1245 Property as Real Property

The property must be depreciable or amortizable in nature.  It can be personal or real, tangible or intangible.  

Although most real property is Section 1250 property, there are certain types of real property that qualify as Section 1245 property.  Section 1245 real property is:

  1. Tangible real property (except for buildings and their structural components) used as:
    • An integral part of the following activities: manufacturing, production, extraction or furnishing transportation, communications, electrical energy, gas, water or sewage disposal services,
    • A research facility used in any of the above activities, or
    • A facility used in any of the above activities for the bulk storage of fungible commodities (i.e., interchangeable goods).
  2. A single-purpose agricultural or horticultural structure.
  3. A storage facility (not including a building or its structural components) used in connection with the distribution of petroleum or any primary product of petroleum.
  4. Qualified timber property (i.e., a lot located in the U.S. containing trees in significant quantities and which is intended for planting, cultivating, caring for and cutting of trees for sale or use in the commercial production of timber products). (Section 194(c)(1))
  5. That part of any real property (other than property described in #1 above), which is subject to amortization or expensing under Sections 169, 179, 179A, 179B, 179C, 179D, 190, 193 or 194. Such property is only considered Section 1245 real property to the extent that amortization is claimed on it, rather than the property in its entirety.
  6. A railroad grading or tunnel bore (Section 168(e)(4)).

Cost Segregation Identifies Qualifying Section 1245 Property

When cost segregation is applied to a real property asset, commonly considered Section 1250 property, it reallocates qualifying building components into Section 1245, Section 1250 Land Improvements and Section 1250 Real Property.

 

Source: A Common Misconception About Section 1245 Property

Posted in §1245, Amarillo Cost Segregation, Austin Cost Segregation, Birmingham Cost Segregation, Commercial Real Estate, Cost Segregation, Dallas Cost Segregation, Del Rio Cost Segregation, Denver Cost Segregation, Franklin Cost Segregation, Houston Cost Segregation, LA Cost Segregation, Lubbock Cost Segregation, Nashville Cost Segregation, New York Cost Segregation, Real Property, San Angelo Cost Segregation, San Antonio Commercial Real Estate, San Antonio Cost Segregation, Seattle Cost Segregation, Waco Cost Segregation | Leave a comment

S Corp Employment Taxes | Avoid Double Taxation

Learn how to avoid double taxation and lower your employment tax liability by forming an S corporation.

Source: S Corp Employment Taxes | Avoid Double Taxation

Posted in Accountant, Accounting, Cost Segregation, Federal Income Tax, Income Tax, Income Taxes | Leave a comment

What Is the IRS Depreciation Schedule for Commercial Real Estate?

What Is the IRS Depreciation Schedule for Commercial Real Estate?

Commercial real estate is an asset qualifying for depreciation.  It cannot be expensed as an ordinary method of write-off.  However, in 2011, the US Congress passed legislation that allowed for 100% bonus depreciation on commercial real estate.  In effect, this allowed for full expensing of the commercial real estate as an asset.

One way to accelerate your depreciation is through cost segregation.  This allows you to reclassify your building into it’s individual building components, some of which have a life that is much shorter than 40 years.  For example, if your building has a computerized security system, you could depreciate the computers in the security system over a five-year period.  This moves a lot of your depreciation to the front of the depreciation schedule — earlier in your ownership of the building — and saves you money in the beginning.  No doubt you have heard your CPA mention “time-value of money”!  But by taking more depreciation up front, you have less depreciation to claim in the future.  Of course, the dollar is worth more today than tomorrow, so that’s fine.

Source: What Is the IRS Depreciation Schedule for Commercial Real Estate?

Posted in Accelerated Depreciation, Accelerates Depreciation, Amarillo Cost Segregation, Apartments, Austin Cost Segregation, Birmingham Cost Segregation, Commercial Real Estate, Cost Segregation, Dallas Cost Segregation, Del Rio Cost Segregation, Dentist Office, Denver Cost Segregation, Dry Cleaner, Federal Income Tax, Franklin Cost Segregation, Hotel Properties, Houston Cost Segregation, Income Tax, Income Taxes, LA Cost Segregation, Lubbock Cost Segregation, Medical Office Building, Multifamily, Nashville Cost Segregation, New York Cost Segregation, Pharmacies, Ranch, Rental Property, Rental Real Estate, Restaurants, San Angelo Cost Segregation, San Antonio Commercial Real Estate, San Antonio Cost Segregation, Seattle Cost Segregation, Self-Storage Facility, Waco Cost Segregation | Leave a comment

Income Tax Deduction and Other Tax Benefits

Donor advised funds (DAFs) provide an immediate income tax deduction as well as four other tax benefits.

Source: Income Tax Deduction and Other Tax Benefits from Donor Advised Funds

Posted in Accelerated Depreciation, Accelerates Depreciation, Cost Segregation, CPA, Federal Income Tax, Income Tax, Income Taxes | Leave a comment

Does Owning Rental Property Help With Taxes?

Does owning rental property help with taxes?

In a word, yes!  There are many ways to save on taxes, but owning rental property will definitely do so.  Here are 3 categories where owning rental property will help.

Accelerated Depreciation

Accelerated depreciation uses the Modified Accelerated Cost Recovery System (MACRS) method of depreciation.  This allows the taxpayer to establish shorter depreciation periods for qualifying assets.  In order to do so properly, this requires an engineering based cost segregation study.  The IRS states, “…Cost Segregation, for it to be properly applied, had to involve those with competencies in architecture, engineering or construction and/or construction techniques, in order for personal property assets to be accurately identified and segregated.”  This statement from the IRS is very clear.  The accounting profession of all stripes is unqualified to apply cost segregation…no disrespect intended, but the facts are clear.  As a taxpayer, it is incumbent upon you to do your own due diligence.  Confirm this information yourself.  Check out the IRS website for cost segregation.

Deductible Expenses

This is a lengthy list, including but not limited to, operation expenses, loan interest, payroll taxes, property repairs, and on and on.

Proper Planning & Strategy

It is vitally imperative that one always seeks professional help when seeking ways to save on taxes.  Tax attorneys, CPAs/accountants, Estate Planners, and those who directly work with assets affected by taxes.  Those would include cost segregation professionals trained in, and fully knowledgeable of, income and property taxes, and how they impact the taxpayer.

Questions or comments?  Contact us at info@segregationholding.com

 

Source 1: Does Owning Rental Property Help With Taxes?
Source 2: Maximizing Tax Benefits from your Rental Portfolio

Posted in Accelerated Depreciation, Accelerates Depreciation, Amarillo Cost Segregation, Austin Cost Segregation, Birmingham Cost Segregation, Commercial Real Estate, Cost Segregation, Dallas Cost Segregation, Del Rio Cost Segregation, Denver Cost Segregation, Franklin Cost Segregation, Houston Cost Segregation, Income Tax, Income Taxes, Lubbock Cost Segregation, Nashville Cost Segregation, New York Cost Segregation, Rental Property, Rental Real Estate, Residential Rental Property, San Angelo Cost Segregation, San Antonio Commercial Real Estate, San Antonio Cost Segregation, Seattle Cost Segregation, Waco Cost Segregation | Leave a comment

How does owning Rental Property affect taxes?

How does owning Rental Property affect taxes?

Beach House

Beach House

Many people own rental property.  Residential rental property includes a single-family house, duplex, triplex, quad-plex, and, of course, apartments of all sizes.  Rental property can also include commercial property.  This can include all types of properties such as office building, retail, warehouse, and more.

If you already own property, then you know real estate is generally considered a long-term investment, since liquidity is not always an option.  Income-producing rental property receives certain favorable as well as unfavorable tax treatment.

Tax Advantages

Rental properties typically appreciate in value.  Rental property under ideal circumstances generates positive cash flow.  This means you make more in rent than you pay out in expenses!  Believe it or not there are plenty who own rental property who don’t get that basic concept.  There are other deductions like mortgage interest and property taxes.  There is also insurance, utilities, supplies, and associated fees.  Then there are “soft” costs like attorney’s, CPA’s, and property management fees.

Reduce your Tax Burden!

Reduce your Tax Burden!

One major rental property tax advantage is cost segregation.  This is a strategy rarely used though IRS required.  It is the only Internal Revenue Code rarely enforced.  The simple reason is that cost segregation, when properly applied with the engineering expertise, reduces income taxes very significantly.  How significantly?  The typical residential rental property saves about $8,000 in taxes on a $100,000 investment.  Commercial rental property is just as good, sometimes better.

Additionally, cost segregation has other benefits.  For example, it reduces property taxes, some sales & use taxes, and better borrowing leverage.  Lenders view the reduced taxes as additional “debt-service coverage.”  This allows for a reduction in interest rate or down payment requirements or lower capital reserves.  These are all great to know when buying or building a rental property.

Tax Disadvantages

Remember that rental property typically appreciates in value?  Recent history tells us that doesn’t always happen.  It can “depreciate” in value.  So, obviously, conversely from above, IRS logoyou could have negative cash flow.  You aren’t making enough to cover your expenses.

Then you have what is called “passive loss limitations.”  This affects many, if not most, rental property owners.  If you have a “job” and your rental property is an “investment” then you are limited to your ability to write-off losses if you have any.  Henssler Financial shares this in an article titled “Tax Advantages and Disadvantages of owning Rental Properties.”

Always Consult Tax Advisor

When buying or selling rental property, it is smart to consult with your tax advisor.  Whether this is your CPA or tax attorney or cost segregation engineer, you should always do so.

Posted in Accountant, Accounting, Apartments, Commercial Real Estate, Cost Segregation, CPA, Income Tax, Income Taxes, Multifamily, Tax Deductions, Tax Planning | Leave a comment

What are the new Tangible Property Regulations?

What are the new tangible property regulations?

IRS Many of you know, and just as many don’t know, there are new tangible property regulations.  The IRS has been working on these tangible property regulations over 4 years.  They were finalized and enacted last January, 2014, just to be rescinded last fall.  In effect, the accounting community raised he** with the IRS claiming “financial Armageddon” was coming if the law were actually applied.  Go figure.

So, implementing these new tangible property regulations has become a chore.  Just ask your CPA or accountant!  The better question to ask is, “how can I use these tangible property regulations to my advantage?”  Let’s look at just a few areas…

Do the tangible property regulations apply to you?

  • The final regulations apply to any taxpayer who pays any dollar amount to acquire, produce, or improve tangible real or personal property.  These regulations apply to partnerships, LLCs, S corporations, C-corporations, and individuals filing a Form 1040 with Schedule C, E, or F.  The final regulations affect you if you incur amounts to acquire, produce or improve tangible real or personal property in carrying on your trades or businesses.  The rules are most significant for those who regularly incur large capital expenditures such as electric utilities, telecommunications companies, and businesses with substantial real estate holdings.  The final regulations were effective for taxable years beginning on or after January 1, 2014. 

When & how do you apply the final tangible property regulations?

Generally, the final tangible property regulations apply to taxable years beginning on or after January 1, 2014, or in certain circumstances, apply to costs paid or incurred in taxable years beginning on or after January 1, 2014.  To make these elections, you should attach a statement for each election to your timely filed original federal tax return including any extension for the taxable year in which the amounts subject to the election are paid.  Each statement should include your name, address, Taxpayer Identification Number, and a statement describing the election.  For some elections, you will need to include a description of the property to which the election is applied.  For example, if you qualify and desire to use the de minimis safe harbor election for qualifying amounts paid during your annual taxable year beginning January 1, 2014, you must file a statement with your timely filed original federal tax return for 2014.

When and how do you change a method of accounting to use the final regulations?

Generally, you receive automatic consent to change a method of accounting by completing and filing Form 3115, Application for Change in Accounting Method, and including it with your timely filed original federal tax return for the year of change.  You also mail a duplicate copy of the Form 3115 to Ogden, Utah.  The Form 3115 will identify the taxpayer, describe the methods that are being changed, identify the type of property involved in the change, and include a section 481(a) adjustment, if applicable.  When cost segregation is applied, per IRS guidelines, this allows for all overpaid income taxes to carry forward into the current tax year automatically. 

Tangible Property Refund

Tangible Property Refund

The section 481(a) adjustment takes into account how you treated certain expenditures in years before the effective date of the final regulations to avoid duplication or omission of amounts in your taxable income.  For detailed instructions for filing applications for changes in methods of accounting under the tangible property regulations, see Rev. Proc. 2015-13, 2015-5 I.R.B. 419, and sections 6.37-6.40 and 10.11 of Rev. Proc. 2015-14, 2015-5 I.R.B. 450. 

So, what should I do now?

Simply!  Contact us here at Segregation Holding.  We partner with CPAs to deliver the necessary engineering analysis for your CPA to apply to your taxes.  Your tax credit or refund is just 30 days away from when we file Form 3115.  Act today…don’t delay…it’s your money!  By the way, your money is guaranteed to you by law.  Segregation Holding commits to help you get it!

Posted in Accountant, Accounting, Amarillo Cost Segregation, Austin Cost Segregation, Cost Segregation, CPA, Dallas Cost Segregation, Del Rio Cost Segregation, Denver Cost Segregation, Federal Income Tax, Franklin Cost Segregation, Houston Cost Segregation, Income Tax, Income Taxes, LA Cost Segregation, Lubbock Cost Segregation, Nashville Cost Segregation, New York Cost Segregation, Repair & Capitalization, San Angelo Cost Segregation, San Antonio Commercial Real Estate, San Antonio Cost Segregation, Seattle Cost Segregation, Tangible Personal Property, Waco Cost Segregation | Leave a comment

Depreciation Recapture

What is Depreciation Recapture?

When a taxpayer purchases a tax-deductible asset for use over several years, the taxpayer can deduct a percentage of the asset’s value from his or her yearly taxable income over the life of the asset. (See IRC §§ 167, 168 and the IRS tables of class lives and recovery periods).  The Internal Revenue Service publishes specific depreciation schedules for different classes of assets.  These schedules tell a taxpayer what percentage of an asset’s value may be deducted each year and the number of years in which the deductions may be taken.  The values of these deductions are used to determine the asset’s recomputed basis at the time the taxpayer sells the asset. (See IRC § 1245(a)(2)(A)).

Source: Internal Revenue Service

Posted in Cost Segregation | Comments Off on Depreciation Recapture

IRC Section 1245 Definition

IRC Section 1245 Definition:

A portion of the Internal Revenue Code states that depreciable property that has been sold at a price in excess of it’s depreciated or salvage value may qualify for favorable capital-gains tax treatment.tax

To find out more, go to…

Source: Section 1245 Definition | Investopedia

Posted in Accelerated Depreciation, Accelerates Depreciation, Accounting, Amarillo Cost Segregation, Birmingham Cost Segregation, Capital Gains, Cost Segregation, Dallas Cost Segregation, Del Rio Cost Segregation, Denver Cost Segregation, Franklin Cost Segregation, Houston Cost Segregation, Income Tax, Income Taxes, LA Cost Segregation, Lubbock Cost Segregation, Nashville Cost Segregation, New York Cost Segregation, San Angelo Cost Segregation, San Antonio Cost Segregation, Seattle Cost Segregation, Waco Cost Segregation | Leave a comment